The North Carolina Department of Insurance has launched an investigation into Blue Cross and Blue Shield of North Carolina. Insurance Commissioner Wayne Goodwin said that the Department received hundreds of complaints since January 2016 about overbilling, inability to verify effective coverage, and inability to pay premiums due to company system errors. Specifically, many customers say they have called Blue Cross and Blue Shield (BCBS) with issues only to spend hours on hold; others say their bills for the months of December or January are incorrect. Some customers complained that they have not received their insurance cards after paying premiums in January. In addition, the Better Business Bureau Business Review of Eastern North Carolina has received complaints from the public about NCBCBS’s problems with service and billing issues.
The DOI plans to check whether the company is complying with statutes and regulations, and plans to issue a public report.
Blue Cross and Blue Shield developed separately. The Blue Cross Association initially provided coverage for hospital services, and Blue Shield covered physicians’ services. In 1982, Blue Shield merged with the Blue Cross Association to form the Blue Cross and Blue Shield Association. The Blue Cross and Blue Shield System is comprised of thirty-six independent and locally operated Blue Cross and Blue Shield companies and Blue Cross and Blue Shield Association. It is the nation’s oldest and largest family of health benefits companies. The independent companies are essentially licensees, independent of the association and of each other, and offer insurance plans within defined regions. Today these companies hold exclusive rights to the Blue Cross and Blue Shield name and logo within a demarcated territory.
North Carolina’s largest health insurer started experiencing problems shortly after individual policies under the Affordable Healthcare Act went into effect on January 1, 2016, and Blue Cross Blue Shield customers began panicking when they could not confirm their coverage. BCBS CEO Brad Wilson personally apologized to customers and promised to refund the charges that have been wrongfully drafted from customers’ bank accounts during the month of January.
The 2016 individual policies enrollment fiasco is the latest blemish on North Carolina’s record with the Affordable Care Act. The state initially was lauded for attaining one of the nation’s highest enrollments. But, in 2015, Blue Cross blamed the ACA for $50.6 million operating loss and was approved for a 32.5 percent rate increase, one of the highest in the country. Blue Cross blames TriZetto Facets IT, a processing and billing vendor, that was utilized to migrate its ACA customers as they re-enrolled.
The DOI plans to check whether the company is complying with statutes and regulations, and plans to issue a public report. The probe is akin to an audit to determine what worked or did not work, whether any laws were broken, and how the process can be improved. Commissioner Goodwin suggested that the insurance market would be stronger if North Carolina created a state-run insurance exchange allowing the Commissioner to hold public hearings on rate increases. In turn, he would have greater negotiating influence. A state-run insurance exchange would also allow the state to seek waivers in order to customize the law in North Carolina and result in more health insurers selling ACA policies in the state.
In addition to handling individual state enrollment issues, Blue Cross is defending itself in a national class action lawsuit.
In addition to handling individual state enrollment issues, Blue Cross is defending itself in a national class action lawsuit. The lawsuit, filed in the summer of 2015, may have major implications on health insurance competition in North Carolina because Blue Cross Blue Shield of North Carolina is the dominant insurance player in the state. It has no competition from other BCBSs in nearby states. Duke Law professor Barak Richman says the resolution of the case could bring better rates through fair competition and potentially new, improved health insurance plans.
The national class action suit was consolidated into an antitrust suit filed in federal court in Alabama. The consolidated litigation involves more than two dozen lawsuits filed by plan subscribers and healthcare providers alleging that Blue Cross and Blue Shield Association and its member plans divided the U.S. healthcare market into geographical areas that allowed plans to avoid competing with one another. The lawsuit alleges that 37 independently owned companies are essentially functioning as an illegal cartel. The Plaintiffs (including hospitals, physicians, surgery centers, and other healthcare providers) assert that the Blues reached an explicit agreement to divide the United States into “Service Areas” and then to allocate those geographic markets, free of competition among themselves.
Many of the Blue Cross and Blue Shield companies are not-for-profit and do business mainly in a single state. The plaintiffs claim that the members of the Blue Association control the organization and use their control to engage into geographic market division. This practice results in increased premiums. The suit also claims that the association limits the amount of insurance business the independent company insurers can do under non-Blue brands. The limit on non-Blue brands creates less competition in a market, which results in higher prices.
Under normal market conditions the health insurers would typically compete against each other. The lawsuit argues that instead the companies have decided to allocate among themselves regional health insurance markets in violation of the Sherman Antitrust Act. The 319-page complaint accuses the health giant of “horizontal price fixing.” The lawsuit notes that many of the individual Blue plans have developed substantial non-Blue brands that could compete with other of the individual Blue plans. But for the alleged illegal agreements not to compete with one another, these entities could and would use their Blue brands and non-Blue brands to compete with each other throughout their Service Areas, which would result in greater competition and competitively priced premiums for subscribers.
Plaintiffs are seeking an order to prevent the Blue Cross and Blue Shield Association from restricting competition among member plans in certain states. Plaintiffs allege that the Association influences healthcare market competition by driving up customers’ prices and pushing down the amounts paid to doctors and other health-care providers. Plaintiffs are also seeking punitive damages, three times the amount of their actual damages.
U.S. District Judge presiding over the case said that the plaintiffs have alleged a “viable market-allocation” scheme.
The lawsuit against Blue Cross and Blue Shield recently survived a motion to dismiss. This may have significant consequences for the Blue Cross and Blue Shield Association due to joint and several liability that may be imposed on individual independent companies. U.S. District Judge presiding over the case said that the plaintiffs have alleged a “viable market-allocation” scheme. The lawsuit moved on to the discovery phase and the plaintiffs are seeking class-action status. If the parties do not reach settlement, the lawsuit can potentially take years to resolve.
The case will most likely be determined by the judicial interpretation of BCBS’s network structure. The court will look at “whether the network represents a franchise or is motivated by a conspiratorial design to reduce competition” according to Richman. At this time no judgment on the merits has been rendered.
In addition to heavy fines, an antitrust violation can place very burdensome regulations on a company. The company may have to potentially restructure how the business operates. Considering how much influence BCBS has over health insurance, everyone who works in the industry will be watching to see how the lawsuit plays out. The outcome may heavily influence how large insurers make business decisions in the future.